German Nationwide Minimum Wage of 8.50 Euros Endangers up to 900,000 Jobs

The introduction of a minimum wage of 8.50 euros will hardly increase the income of Germany’s poorest workers at all, but will endanger up to 900,000 jobs. “Workers who are currently topping up their income are hit particularly hard”, notes Ifo research professor Ronnie Schöb. Workers, or employees who also receive supplementary stage II unemployment benefits, will hardly take any extra cash home resulting from the wage increase, but face far higher unemployment risks. If the hourly wage of a single worker who receives supplementary benefits increases from 5 euros to 8.50 euros, his/her monthly net income will only increase by 60 euros per month or 6.1 percent; as the additional income earned will largely be offset against any stage II unemployment benefits claimed. For employers, however, labour costs will increase by 70 percent.

These are the results of a new study jointly conducted by Schöb, Marcel Thum, Executive Director of Ifo Dresden and the Magdeburg-based financial economist Andreas Knabe. The total employment losses amount to up to 900,000 jobs. This includes the loss of 660,000 marginal employment positions (including pensioners and students). The total loss of full-time positions corresponds to around 340,000 jobs.

Two thirds of workers receiving supplementary benefits have worked for a wage below 8.50 euros to date. Workers in the new Länder are also heavily impacted. Around 5 million workers will potentially be affected in Germany, which represents 14 percent of all workers, with this figure as high as 20.4 percent in eastern Germany. For full-time employees the figure is around 1.2 million workers (5.2 percent of all full-time employees).

Comparisons with the minimum wage in other countries are therefore misleading. In Great Britain a minimum wage of 3.60 British pounds was introduced in 1999. “Only 5 percent of workers were affected at the time. If a similarly cautious start were to be made in Germany, the minimum wage would not be higher than 6.22 euros,” explains Marcel Thum, Executive Director of Ifo Dresden. This would correspond to 6.47 euros in the west and 4.62 euros in the east. A minimum wage based on the US model would be even lower.

The study “Der flächendeckende Mindestlohn” can be downloaded in German as a working paper from the site of the FU Berlin.

It will be published in the next issue of Perspektiven der Wirtschaftspolitik, the journal of the Verein für Socialpolitik.